Key Takeaways

  • Standard construction contracts define project scope, payment, timelines, and dispute resolution terms.
  • AIA and AGC are two widely used providers of standard contract templates.
  • Contract types include lump sum, cost-plus, time and materials, and more—each with unique benefits and risks.
  • JCT and NEC contracts are prominent in the UK and offer structured frameworks.
  • Custom contracts should still follow industry best practices and be legally reviewed.

Standard construction contracts, or construction agreements, are documents that put the obligations of both parties into writing, so the client knows what they should expect as far as work is concerned, and the construction contractor knows what to expect in terms of payment.

Many jobs, even larger ones, are often agreed upon over a contract as short as two pages, but this can be risky. If the project does not go as planned, whether it be due to cost overruns, excessive delays, substandard work, or anything else, there will be slim documentation to settle any contract disputes.

A lack of documentation is bad for both parties—the contractor might not get paid for the work that was done, and the client might not get the work that they paid for. Additionally, without clear terms set out from the start, there is a larger risk of minor disputes growing into larger ones, even lawsuits.

Therefore, use of standard construction industry contracts is recommended, as these have been used for years and been tested in the courts. They can also be easily adapted to specific projects.

Construction contracts furnished or written by construction contractor organizations, such as the Associated General Contractors of America (AGC), lean in the contractor’s favor, while those made by the American Institute of Architects (AIA) provide terms more favorable to the owners. However, either one will outline the correct details of the project, making the project easier for all involved.

AIA Contracts

AIA contracts are among the oldest contracts used and are the most common contracts used by architects. The AIA offers contracts for use in projects of all scale and kind, including design-build, cost-plus, and fixed-price.

Such contracts can be had in both electronic and hard copy form from the American Institute of Architects. PEM Software Systems also offers editable versions you can download.

Some of the contracts they provide include:

  • A101, A102, and A103. These are standard construction contracts but are generally considered excessive for residential work.
  • A105. A short-form contract more suitable for smaller, fixed-price projects.
  • A107. Recommended for jobs operating with a time-and-materials basis. This contains dispute-resolution provisions that the A105 lacks.
  • A132 and A133. More complex contracts that cover the responsibilities of the contractor, construction manager, architect, and owner.

Because AIA contracts tend to favor the owner, some contractors may not want to work with them, but those contractors who deal with architectural projects usually do not have a problem with them.

Types of Construction Contracts and Their Use Cases

There are several common types of standard construction contracts, each suited to different project scopes, risks, and pricing models. Choosing the right one can impact timelines, costs, and potential disputes.

1. Lump Sum (Fixed Price) Contracts:These are straightforward agreements where the contractor agrees to complete the project for a set price. They’re ideal for projects with well-defined scopes but pose risks for contractors if unexpected issues arise.

2. Cost-Plus Contracts:The owner agrees to pay for the actual cost of construction plus a fee. These offer flexibility and transparency but can lead to budget overruns if not managed carefully.

3. Time and Materials Contracts (T&M):These are used when scope is uncertain. The client pays based on time spent and materials used. T&M contracts require rigorous documentation to avoid disputes.

4. Unit Price Contracts:Often used for public infrastructure work, these contracts base payments on agreed rates per unit of work (e.g., per cubic yard of excavation). They’re effective for projects with measurable outputs.

5. Guaranteed Maximum Price (GMP) Contracts:These are similar to cost-plus but set a maximum price cap. Contractors may receive incentives for keeping costs under the GMP, promoting efficiency.

6. Design-Build Contracts:The contractor handles both design and construction, offering a single point of accountability. These contracts promote collaboration but limit the owner’s design control.

7. Integrated Project Delivery (IPD):A collaborative contract model that aligns the interests of all parties, including owners, architects, and contractors. IPDs are beneficial for large, complex projects with high risk tolerance.

Other Standard Contracts

The AGC also publishes contracts akin to the AIA’s, although these generally favor the contractors. Contract forms (but not contracts) can be had from the National Association of Homebuilders (NAHB). These are published in a book called Home Builder Contracts & Construction Management Forms.

Whether you use AIA or AGC contracts or contracts based off of the NAHB forms, the most important step you must take is to read and understand the contract and make sure that it does not contain any clauses that could hurt you down the road. Comparing contracts to one another or consulting legal experts can be helpful in this regard.

JCT and NEC Standard Forms

In addition to AIA and AGC templates, other standard forms are widely used internationally, especially in the United Kingdom.

Joint Contracts Tribunal (JCT):JCT contracts are prevalent in UK construction and are designed to reflect standard industry practices. They include various forms tailored to different procurement methods, such as:

  • JCT Standard Building Contract: Suited for complex projects requiring detailed specifications.
  • JCT Design and Build Contract: Merges design and construction responsibilities under one party.
  • JCT Minor Works: Simplified contracts for smaller, less complex jobs.

New Engineering Contract (NEC):NEC contracts emphasize project management and risk mitigation through clarity and flexibility. They encourage collaboration and are frequently used in public sector projects. NEC forms include:

  • NEC3 and NEC4 Engineering and Construction Contracts: Offer adaptable frameworks and promote proactive issue resolution.
  • Term Service Contracts: Designed for ongoing maintenance or service-based projects.

Both JCT and NEC contracts include detailed guidance notes and support fair and transparent administration of construction agreements.

Drawing Up Your Own Contract

Another option is to create your own contract, which can save you money, although you should have a lawyer review any contract before you sign it.

Using this method, it is most common to adapt and borrow clauses from different contracts to create the one that best suits your needs. A good base for your contract is the Building Advisor Model Construction Contract, as a construction attorney drafted it for the specific purpose of protecting homeowners in medium to large projects. Using a contract checklist can also help you in contract creation.

Clear, precise, and plain language is also best used for this task, although certain legal phrases are well established and should be used where relevant, such as “workmanlike manner,” “time is of the essence,” and “substantial completion.” The main goal is that both parties understand what is desired and how it is to be achieved. There is no need to try to impress people with complex legalese that may not be fully understood by either party.

A good contract should provide a clear roadmap to project completion and help prevent project disputes and lawsuits. It should also be in compliance with all laws.

Key Clauses in a Standard Construction Contract

Regardless of the format or provider, a robust standard construction contract should include these essential clauses:

  • Scope of Work: Clearly defines the deliverables, materials, and labor involved.
  • Payment Terms: Outlines payment schedule, method, and penalties for late payment.
  • Schedule and Deadlines: Specifies the start date, milestones, and final completion date.
  • Change Orders: Explains how scope changes are to be requested, approved, and paid for.
  • Dispute Resolution: Details procedures for handling disagreements (e.g., mediation, arbitration).
  • Termination Clauses: Clarifies conditions under which either party may terminate the contract.
  • Indemnity and Insurance Requirements: Assigns liability and mandates adequate insurance coverage.

Including these clauses ensures that all parties are protected and reduces the risk of future disputes.

Frequently Asked Questions

  1. What is a standard construction contract used for?
    A standard construction contract defines the responsibilities, scope of work, timelines, and payment terms between an owner and a contractor to prevent disputes and ensure project clarity.
  2. What is the difference between AIA and AGC contracts?
    AIA contracts are typically owner-friendly and architect-focused, while AGC contracts are created by contractors and often favor their interests.
  3. When should you use a cost-plus contract?
    Cost-plus contracts are ideal when the scope of the project isn’t fully defined, allowing flexibility in materials and labor while still compensating the contractor fairly.
  4. Are JCT contracts only used in the UK?
    Yes, JCT contracts are most common in the UK and reflect British construction standards and legal practices. U.S. projects typically use AIA or AGC contracts instead.
  5. Can I modify a standard construction contract?
    Yes, standard contracts can and often should be modified to fit the unique requirements of a project. However, any changes should be reviewed by a qualified attorney.

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